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PRESIDENT BARACK OBAMA BLAMED CHRYSLER'S BANKRUPTCY on "speculators," but the real problem was that the government's plan gave too much to the auto maker's unions and not enough to creditors.

If the secured creditors holding $6.9 billion in claims had been offered anything close to what the administration wants to give the United Auto Workers, there would have been no bankruptcy filing by Chrysler.

Jim Lo Scalzo (inset), Jeff Kowalsky: Bloomberg News

In the bizarre pecking order offered by the administration, the unions, which are at the bottom of Chrysler's capital structure, would get nearly full recovery value for their $10.6 billion retiree health-care claims, while the secured creditors at the top of the hierarchy would receive about 30 cents on the dollar.

Credit that to politics and a likely desire by Obama to reward the powerful UAW. After all, who in America really cares about a group of deep-pocketed banks and investment firms holding the $6.9 billion of Chrysler debt? "I don't stand with them," as Obama said of the dissidents who derailed the deal.

Another surprising aspect of the Obama proposal was the willingness of the Treasury to forgive a $4 billion loan to the company made in December in return for an 8% stake in the restructured auto maker -- an interest that could be worth only 20 cents on the dollar assuming new Chrysler's equity is valued at $10 billion.

This is ironic because Obama has been adamant about protecting taxpayers' interest in the bailout of the financial-services industry. Uncle Sam is prepared to put another $8 billion into Chrysler. Let's hope that money meets a better fate than the first $4 billion.

Obama, meanwhile, asked little sacrifice of Chrysler's unions. The administration proposed giving them a $4.6 billion note yielding 9% due in 2022, and 55% of the equity in a restructured Chrysler. That could mean a nearly full recovery of their $10.6 billion claim.

The UAW was offered a lush deal even though its claim is junior to the claims of Chrysler's other major creditors, including the Treasury. Fiat gets a potential 35% equity stake in return for an alliance that may be of little benefit to the No. 3 domestic auto maker.

The one taxpayer bonus is a $288 million fee for making the new loans. It's hard to recall a similar fee on government loans. Maybe the Wall Streeters in Obama's administration figured the government should get a Street-style commitment fee for extending a new credit.

"We're not holding out for some sweetheart deal. We're asking for the normal treatment of creditors in bankruptcy, and the absolute priority of claims," says George Schultze of Schultze Asset Management, a Purchase, N.Y., investment firm. "Why should the administration force politics into this deal and give a special gift to a favored group of creditors?"

Wall Street will be closely watching how the bankruptcy judge handling the case, Manhattan's Arthur Gonzalez, treats the secured creditors relative to the unions. Contract law favors the bondholders.

Chrysler's debt now trades below 30 cents on the dollar, indicating the markets don't expect much greater recovery value in bankruptcy than what Uncle Sam offered. The Street is betting the bankruptcy lasts six months, not the 30 to 60 days envisioned by the administration, because of the contentious issues facing Judge Gonzalez.

The administration may have offered the unions a good deal to solidify their support for Chrysler. But the UAW, even with pay and other concessions, already is well treated relative to most other blue-collar workers.

ANOTHER AGGRIEVED CREDITOR GROUP is made up of the holders -- many of them retirees and other individuals -- of General Motors' $27 billion of unsecured debt. GM announced a punitive take-it-or-leave-it offer last week under which bondholders would get 10% of GM's equity and no cash. In contrast, GM proposed giving a roughly 39% equity stake to the UAW, plus $10 billion in future payments to satisfy a $20 billion retiree health-care claim that ranks equally with the unsecured debt.

GM said that it likely would file for bankruptcy by month-end if 90% of bondholders don't accept the proposal. A bankruptcy looms because bondholder approval is highly unlikely on GM's terms.

A committee of GM bondholders Thursday made a seemingly reasonable counterproposal in which they offered to be treated equally with the UAW based on the value of their claims. The bondholders would get 58% of GM's equity, the UAW, 41% and GM's current shareholders, 1%. Under the GM plan, the government would get 50% of GM equity in return for forgiving about half its $19.4 billion loan to the company -- including $4 billion yet to be disbursed. Under the GM bondholder plan, the government debt would stay outstanding.

Whether GM avoids bankruptcy or not, its common shares, now around $1.80, look rich. In a bankruptcy, GM holders might get little or nothing, while an out-of-court settlement like the one proposed last week by GM would result in massive dilution of existing holders, with GM's share count rising one-hundredfold to 60 billion from the current 600 million. One reason that GM shares are holding up: It is virtually impossible to short the stock.